Market is healthy, but …

Breaking records one after the other, the market made history anew last Friday when it breached another psychological price barrier of the benchmark Philippine Stock Exchange index (PSEi) as it reached an all-time high of 9,041.20. This was the market’s eighth record-breaking performance since the start of the year.

Needless to say, bullish sentiments continued to power the market, thanks to local punters. Market developments on Wall Street have also been fueling peers on this side of the world.

Helping to abet local buying initiatives, too, was the stronger trading activity of foreign investors. They maintained their trading stance as net buyers while their market participation increased for the week to 50.29 percent of total transactions.

The market ended the week with a net gain of 125.28 points or 1.41 percent. This now brings its overall gain for the year to 482.78 points or 5.64 percent.

We must also take note of investors’ seasonal repositioning of their portfolios, thus helping to power the market.

Bottom line spin

A little disappointing, however, was Fitch Rating’s pronouncements last week through its subsidiary, BMI Research, about the economy’s prospects.

The country’s growth rate, according to BMI, would “still (be) strong by regional and historical standards.” The disappointing news was that the Philippines supposedly would have a “moderate” growth rate in the medium term. In particular, BMI expects the country’s gross domestic product (GDP) to grow “6.3 percent in 2018 and 6.2 percent in 2019.”

These figures are lower than what the economy achieved previously. Reports showed the economy grew by 6.7 percent in 2017 and 6.9 percent the previous year.

BMI’s figures were also below the government’s GDP targets of “7 percent to 8 percent for 2018 to 2022.”

The “unfavorable base effects” of the 2016 presidential elections on the economy and the further slowdown in the rate of government consumption growth were cited as significant factors leading to BMI’s forecasts.

BMI also highlighted the country’s “worsening business environment.” It particularly noted that fixed capital formation growth slowed down to 10.3 percent in 2017 from 25.2 percent in 2016.

The decline in construction to 5.7 percent from 15.1 percent and fall in durable equipment spending to 12.2 percent from 34.5 percent also caused the big drop.

The Duterte administration’s violent anti-drug war, according to BMI, also had a hand on the matter.

US President Donald Trump’s protectionist policy pronouncements were likewise cited to have contributed to the confounded fixed capital formation growth. BMI admitted that Trump’s pronouncements have “led many US investors to adopt a wait-and-see approach with regard to new ventures in locating their business offshore.”

Particularly affected were the investment commitments in the business process outsourcing (BPO) sector. The US is one of the largest investors in the Philippines’ BPO business.

Service exports growth in the last quarter of 2017 was only 12.6 percent as compared to 19.9 percent the preceding year.

BMI’s forecasts surely undermine the government’s own targets. These goals, according to the government, can find a buffer in prevailing good demographics including the anticipated increase in trade and investment links with China and Japan. There’s also the country’s aggressive infrastructure commitments, as supported by the passage of Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN).

This disparity in positions will certainly restrain a market willing to grow further. It can trigger unexpected market pullbacks and downright reversals.

If you will look further at last Friday’s trading results, the market was technically on the advance. Fundamentally, however, it was on an uneven footing.